Autumn Statement 2013: Over-60s offered 'cheap' state pension boost

Millions who reach state pension age before April 2016 will be offered the
chance to "buy" extra state pension income

Millions of over-60s will receive a one-off chance to “buy” extra state pension worth hundreds of pounds a year, it emerged today.

In his Autumn Statement George Osborne, the Chancellor, unveiled a plan to offer a boost to those who struggled to build up full entitlement to the state pension during their working lives – even if they have already retired.

It will be offered as a top-up to the basic state pension, currently worth up to £110.15 a week and due to rise to £113.10 next April.

This could allow someone who reaches state pension age before 2016 the opportunity to pay around £700 in return for an extra £190 a year for life, pension analysts said.

Some people could be able to pay much more and get even bigger boosts to their annual incomes. The details of the scheme are yet to be confirmed.

Based on the estimations, a pensioner would only need to live four years to profit from the exchange, with the payouts backed by the Government and due to rise every year with inflation.

In effect, it could represent a much cheaper way to boost retirement income than saving into a private pension scheme, according to calculations for the The Telegraph by Hargreaves Lansdown, the advisory firm.

To show the value of such an offer – a pension fund worth £700 today would, in theory, buy just £24 a year of inflation-linked income via an annuity.

The new state pension top-up scheme is due to launch in October 2015. It is expected to run only for a short time – possibly ending with the introduction of the new flat-rate state pension in April 2016.

It will be open to those who reach state pension age before 2016, including existing pensioners who are receiving less than the full amount from the state.

The Autumn Statement document said: “The government will introduce a scheme to allow current pensioners, and those who reach State Pension age before the introduction of the new single tier pension, an option to top up their Additional State Pension record through a new class of voluntary National Insurance contributions.

"The scheme will be introduced in October 2015 and will be time limited. The details of the scheme will be set out closer to the time of implementation, with the price of the new class of National Insurance being set at a broadly actuarially fair rate. The government will legislate for this scheme at the earliest available opportunity."

Currently, pensioners need 30 years of National Insurance contributions or credits to get the full basic payout of £110.15. The can currently "buy" extra NI credits to top up their basic pension if it is below this amount.

The new scheme announced today is based on this arrangement, but will operate entirely separately.

As well as the basic payout, workers build up entitlement to an earnings-related top-ups – either something called Serps or S2P.

At most, these top-ups can more than double the amount pensioners receive. Some pensioners are understood to take more than £260 a week from the state.

The scheme launched by the Government in the Autumn Statement could allow anyone with less than this amount to buy extra income, although there may be a cap on the top-ups.